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Tuesday, August 31, 2010

Contracts: Prebankruptcy Provisions

Creditors and lending institutions have recently been including various provisions in their contracts and credit agreements, which contemplate what will happen in the event of a bankruptcy. The provisions can be divided into three basic categories: (1) Waivers; (2) Covenants; and, (3) Representations/Admissions.

Waivers limit a borrower's right to either file a bankruptcy petition or to oppose the creditor's lifting of the automatic stay. Covenants provide for immediate relief from the automatic stay or consent not to contest a lift stay motion. Representations/Admissions include provisions in the agreement which admit the elements necessary for the creditor to lift the automatic stay, admit that any future bankruptcy filing will be made in bad faith to hinder or delay the creditor and admissions that security interests are properly perfected.

The prebankruptcy waivers provide a comfort level to lenders and creditors in the hope that they will not be delayed or damaged in the event of bankruptcy and they also are put in agreements to provide assurances that they are avoiding deals with debtors heading toward bankruptcy.

The courts are split on the enforcement of the prebankruptcy provisions. Some courts have expressed concern as to whether or not the provisions violate public policy. In almost all cases however, the courts have found the agreements are not necessarily self-executing. Therefore, a creditor should be weary of taking any action, which may result in a violation of the automatic stay without first obtaining bankruptcy court approval.

On the positive side, prebankruptcy provisions have proven to speed up the process and assist creditors in obtaining quick relief from the automatic stay of bankruptcy. In addition, some courts have upheld the various admissions and representations as conclusive evidence of the elements needed to lift the stay. This has led to a decrease in litigation cost for some creditors.

It would be dangerous and unadvisable to take any action which may be determined to be a violation of the automatic stay in reliance on the prebankruptcy provisions, but including the provisions may save you litigation fees in the long run. Therefore, while prebankruptcy provisions are not guaranteed to work, you may want to include them in your agreements.

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The above is not meant to replace legal counsel. If you'd like to speak to one of Gross & Romanick's business lawyers, contact us by calling 703-273-1400 or by filing out one of our online Information Request form.

Wednesday, August 25, 2010

Business Owner and Landlord's Liability for Criminal Assaults: How Adequate is Your Security?

A sales clerk abducted from a Northern Virginia shopping mall obtained a $360,000 settlement from the owners and operators because a former mall employee sodomized her, attempted to rape her and threatened to kill her. Yet, a woman who was attacked in a parking lot after attending a dinner theatre had her favorable verdict reversed on appeal to the Virginia Supreme Court. What is the difference between these two cases? Apparently, the main distinction was that 170 crimes had occurred at the mall in the past four years, while the dinner theatre had only two prior isolated acts of violence.

Duty to Foresee Imminent Danger

In the dinner theatre case (Wright v. Webb) the Court held that an owner did not have a duty to foresee acts of criminal violence and that two acts are insufficient to "lead a reasonable person ... to conclude that there was an imminent danger of criminal assault which required the invitor to take action to protect Webb." The mall which settled for $360,000 had numerous acts of violence, but hired only had one security guard to monitor the mall's interior.

Changes in Premise Liability Article

The Webb case would have a very different result if the business was the type that either "attracts" or "provides a climate" for assaultive crimes. But, what this standard means is difficult to define. Thus, a 24 hour Hardee's located in a bad neighborhood and catering to a "club crowd", which possesses guns and drugs, was not sufficient to prove that the business established a "climate" for criminal activity. On the other hand a car wash was held liable for maintaining a nuisance because of the behavior of its patrons who used and sold narcotics, consumed alcohol, littered and played loud music. Thus, we can assume that a criminal act committed by a patron of the car wash might result in liability to the owner. Nevertheless, even if the premises is permeated with criminal behavior, maintaining adequate security may still overcome liability for criminal acts against patrons.

Inadequate Security

A 1992 study indicates the average jury verdict in an inadequate security case is $3.35 million, with an average out of court settlement of $545,800. In a recent Texas case a jury awarded $17 million to a residential tenant who was raped by an intruder who had broken into the management offices and stole the woman's unit key. The victim had requested a deadbolt lock from the inside but the management company refused because the lease prohibited measures that would make the unit inaccessible to the management company, a policy which violated state law. In addition, the keys were stolen the day before the actual crime and no preventative action was taken; thus, it was foreseeable that there was danger of an imminent crime.

If a case goes to trial, the plaintiff will hire an expert who will identify the reasonable and appropriate preventative security measures which should have been taken by the owner. This same type of expert should be hired by an owner before a crime occurs in order to establish a security plan. Follow the plan, because a deviation can be used against the owner. Indiscriminate notation of problems by security personnel must be avoided; another recent large settlement resulted from the mall's personnel categorizing some teenage assaults as sexually related, as well as overdocumentation and exaggeration of many petty problems which occurred at the mall. Furthermore, failure to warn tenants of crimes that have been committed on the property and false assurances about security measures are cited as reasons for lawsuits.

In a case involving imminent danger of criminal assault, the Virginia Supreme Court reversed a judge who threw out a premises liability case. The case involved a restaurant which was sued for permitting a patron who was threatening a customer to return to the restaurant after he was initially escorted outside. Because this patron later assaulted the same customer upon reentry, the Court found sufficient evidence that the restaurant might have had notice that the assailant was likely to commit an assault o n a customer.

Standard of Care

Violation of federal, state, county and other municipal statutes, ordinances and regulations can be used by a plaintiff to establish negligence per se. The Residential Landlord Tenant Act authorizes localities to require charley bars, secondary locks on sliding glass doors and special locks on windows. Many municipalities have passed lighting requirements for parking lots, parking garages, common areas and other specific places. Virginia Code Section 9-183, et.seq. establishes licensing requirements for security guards. Follow these requirements.

The American National Standard Institute (ANSI) and other industry standards can help determine the specifications that should be followed. A focus on actual practices of comparable entities assists in discovering a standard of care. By surveying competitors an owner knows where closed circuit television cameras are normally used or how fire escape access is limited.

Conclusion

Do a realistic assessment of the likelihood of a crime being committed against your tenant or customer. Based upon that assessment, structure and follow a security plan which may include more security guards and structural solutions. Finally, do not violate any building codes designed to promote safety!


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The above is not meant to replace legal counsel. If you'd like to speak to one of the lawyers at Gross & Romanick, call 703-273-1400 or fill out our online Information Request form.

Monday, August 23, 2010

Buildout Allowance - Landlord Gets Slammed

FACTS: Tenant leased property from a commercial Landlord. Part of the lease agreement was a building allowance of $699,000 to be paid by Landlord for improvements. Tenant hired a contractor to do the improvements to the property. The Contractor accidentally demolished an unoccupied improvement on the property. Upon noticing their mistake - the same day, The Contractor offered to remedy by either rebuilding the improvements or allowing for a credit for the value of the improvements. Instead of accepting one of the offered remedies the Landlord decided to withhold $301,000 of Tenant's allowance. When Tenant and Contractor sued for the allowance, the Landlord counter-claimed for lost rent and replacement of the improvement even though the Landlord did not have a tenant for the demolished space and did not replace the demolished improvement.

COURT RULING: The Court determined that the Landlord's counter-claims were without merit; and that the Landlord and its counsel should have known of the meritless nature of the claim. Judgment was entered against the Landlord for $351,057.65 for the withheld allowance plus interest. The Court also sanctioned the Landlord the sum of $251,018.16 for attorney's fees and costs for the baseless counter-claim and defenses, which prolonged the litigation (Va. Code § 8.01-271.1).

ACTION ADVISE: A building allowance is an enforceable right of the tenant. If the landlord withholds payment for the allowance, it will need good cause to do so. Furthermore, if a landlord does not have a tenant for the demolished or damaged space, it should not withhold a building allowance on the basis of lost rent. If the landlord has no intention of rebuilding the damaged improvements, the landlord is not acting in good faith by charging the contractor for the repair cost. Finally, asserting baseless claims in a court proceeding can result in sanctions. Try to resolve these disputes out of court!

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The above is not meant to replace legal counsel. If you'd like to meet with one of Gross & Romanick's lawyers, please call 703-273-1400 or fill out one of our online Information Request forms.

Saturday, August 21, 2010

Slip & Fall: Landlord's Should Take Notice

Virginia is one of the most difficult states in the country in which to win a slip and fall case by an injured party. Nevertheless, a jury recently awarded a Plaintiff $2.5 million against a landlord for a slip and fall. Yet, a previous jury hearing the same case presented by the same attorneys awarded $0. The vagaries of the jury system account for this stark discrepancy, but the ultimate verdict indicates that landlords need to understand their obligations to safeguard the public from injury while on their premises.

Three 1992 Virginia Supreme Court cases prevent most victims of slip & falls from succeeding. A&P Tea Co. v. Rosenberger, establishes that owners of property are not insurers or guarantors of the safety of business invitees. Colonial Stores v. Pulley states that plaintiffs must prove that the owner created the defect which caused the fall or at the very least should have known of the problem. A&P Tea Co. v. Berry instructs judges to dismiss the case if the jury must speculate in order to determine that the owner had notice of the defect.

Thus, in order to recover Plaintiffs must prove that the defendant knew or should have known of the defect which caused the fall. This standard of proof is extremely difficult since many victims do not know why they fell or cannot conclusively prove that the owner or lessor of the property actually knew a problem existed. However, violations of building codes and standards can overcome proof difficulties since many such violations are considered negligence per se with no requirement of notice.

The $2.5 million case was successful because Plaintiff introduced evidence that there was grease or greasy water on the floor of the fast food restaurant. Another case was successful because a leaky roof was not repaired after notification by a tenant. A more complex case succeeded when a succulent plant was shown to be shedding leaves because of improper care by the plant section of the department store, which also failed to sweep the area for 4 1/2 hours. In addition, a slight erosion of the owner's position is taking place regarding slip on ice cases, since the Supreme Court held that merely walking on ice or snow was not an assumption of the risk or contributory negligence.

Despite these and other cases, the landlord in Virginia has the upper hand if proper attention is paid to dangers for which there is actual notice and if proper maintenance schedules are followed.

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The above is not meant to replace legal counsel. If you'd like to speak to one of Gross & Romanick's lawyers, please call 703-273-1400 or fill out our online Information Request Form.